What a ride!
On the whole, we've gone nowhere since Christmas. The S&P Futures (/TF) were at 2,260 on 12/26 and they finished the day yesterday at 2,266 with dips and pops along the way but, ultimately, nothing happened. Great news has already been priced in and the markets are now looking for justification to these all-time highs. S&P earnings are expected to be up 15% in 2017 but most of that is because Trump is expected to cut taxes – not because things are getting so much better in Corporate America.
The Fed has been fairly consistent in letting people know they expect to hike rates 3 times in 2017 and 3 rate hikes are certainly not baked into this market. We'll be getting earnings this morning from 6 Big Banks and the Financial sector is up 17% since Election Day – can they justify that kind of price action? JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), PNC Financial (PNC), First Horizon (FHN) and First Republic (FRC) are scheduled to report, as well as BlackRock (BLK) and, so far, BLK, BAC and FHN missed on Revenues with FHN also missing on earnings with PNC beating and we're waiting for FRC and JPM.
In anticipation of disappointment in the Financials, we put up a nice hedging play using the Ultra-Short ETF (SKF) offset by a bank we thought would recover (WFC) in Monday's post. We'll see how that plays out later today. Our target is $33 to make $6,150 but, so far, no shockers. Of course, I'm not sure you need a shocker to knock financials back from a 17% run, which knocked SKF back 25% over the same period.
Ah, there's JPM and they earnings are up 2% from last year but how does that justify the 2016 50% bull run from $57 to $86? It's the same with BLK, who made $4.75 last year in Q4, when shares were $300 but now shares are $378 (26% more) with earnings hitting $5.14 (8.2% more). That's pretty much the story for the 2016/2017 market – paying 3x for incremental earnings!